Levi Strauss& Co. Reports Second Quarter 2018 Financial Results and Raises Full-Year Guidance

Levi Strauss & Co. (LS&Co.) today announced financial results for the
second quarter ended May 27, 2018.

“We delivered our third consecutive quarter of double-digit revenue
growth, driven by the disciplined execution of our strategies and our
more diversified portfolio,” said Chip Bergh, president and chief
executive officer, Levi Strauss & Co. “These results have outpaced the
industry and exceeded even our own expectations, and as a result, we are
raising our full-year revenue guidance.”

Highlights include:

Net revenues grew 17 percent on a reported basis and 13 percent
excluding $35 million in favorable currency translation effects, driven
by broad-based Levi’s® brand growth in all regions and channels. On a
reported basis, direct-to-consumer revenues grew 19 percent on
performance and expansion of the retail network, as well as ecommerce
growth. The company had 53 more company-operated stores at the end of
the second quarter of 2018 than it did a year prior. Wholesale reported
revenues grew 14 percent reflecting higher revenues in all regions.

Net income increased $59 million primarily reflecting gains on the
company’s hedging contracts in the second quarter of 2018 as compared
with losses on hedging contracts and a debt refinancing charge in the
second quarter of 2017.

Adjusted EBIT grew 15 percent reflecting the revenue growth and higher
gross margins, partially offset by higher SG&A. Reconciliations of
Adjusted EBIT are provided at the end of this press release.

Second Quarter 2018 Highlights

Regional Overview

Reported regional net revenues and operating income for the quarter are
set forth in the table below:

% Increase(Decrease)

 %

 %

* Note: Regional operating income is equal to regional adjusted EBIT.

Cash Flow and Balance Sheet

At May 27, 2018, cash and cash equivalents of $699 million were
complemented by $698 million available under the company’s revolving
credit facility, resulting in a total liquidity position of
approximately $1.4 billion. Net debt at the end of the second quarter
was $359 million.

Cash from operations for the first half of the year was $228 million, an
increase of $11 million from last year, which included a planned
acceleration of pension funding of approximately $50 million. Free cash
flow for the first six months of 2018 was $81 million, a decline of $19
million compared to the first six months of 2017. This was due to the
increase in cash from operations being more than offset by realized
losses on our hedging contracts compared to realized gains last year,
higher repurchases of common stock in connection with our equity
incentive program and a higher dividend payment. A reconciliation of net
debt and free cash flow, non-GAAP financial measures, is provided at the
end of this press release.

Investor Conference Call

The company’s second-quarter 2018 investor conference call will be
available through a live audio webcast at http://engage.vevent.com/rt/levistraussao~071018
on July 10, 2018, at 1 p.m. Pacific / 4 p.m. Eastern or via the
following phone numbers: 800-891-4735 in the United States and Canada,
or +1-973-200-3066 internationally; I.D. No. 5288288. A replay is
available the same day on http://www.levistrauss.com/investors/earnings-webcast
and will be archived for one month. A telephone replay is also available
through July 16, 2018, at 855-859-2056 in the United States and Canada
or +1-404-537-3406 internationally; I.D. No. 5288288. Please see http://www.levistrauss.com/investors/earnings-webcast
for a discussion and reconciliation of non-GAAP measures referenced on
the investor conference call.

About Levi Strauss & Co.

Levi Strauss & Co. is one of the world’s largest brand-name apparel
companies and a global leader in jeanswear. The company designs and
markets jeans, casual wear and related accessories for men, women and
children under the Levi’s®, Dockers®, Signature by
Levi Strauss & Co.™, and Denizen® brands. Its products
are sold in more than 110 countries worldwide through a combination of
chain retailers, department stores, online sites, and a global footprint
of approximately 2,900 retail stores and shop-in-shops. Levi Strauss &
Co.’s reported fiscal 2017 net revenues were $4.9 billion. For more
information, go to http://levistrauss.com.

Forward Looking Statement

This news release and related conference call contains, in addition
to historical information, forward-looking statements within the meaning
of the Private Securities Litigation Reform Act of 1995, including
statements related to: revenue growth and currency impacts. We have
based these forward-looking statements on our current assumptions,
expectations and projections about future events. We use words like
“believe,” “will,” “so we can,” “when,” “anticipate,” “intend,”
“estimate,” “expect,” “project” and similar expressions to identify
forward-looking statements, although not all forward-looking statements
contain these words. These forward-looking statements are necessarily
estimates reflecting the best judgment of our senior management and
involve a number of risks and uncertainties that could cause actual
results to differ materially from those suggested by the forward-looking
statements. Investors should consider the information contained in our
filings with the U.S. Securities and Exchange Commission (the “SEC”),
including our Annual Report on Form 10-K for the fiscal year 2017 and
our Quarterly Report on Form 10-Q for the quarter ended May 27, 2018,
especially in the “Management’s Discussion and Analysis of Financial
Condition and Results of Operations” and “Risk Factors” sections. Other
unknown or unpredictable factors also could have material adverse
effects on our future results, performance or achievements. In light of
these risks, uncertainties, assumptions and factors, the forward-looking
events discussed in this news release and related conference call may
not occur. You are cautioned not to place undue reliance on these
forward-looking statements, which speak only as of the date stated, or
if no date is stated, as of the date of this news release and related
conference call. We are not under any obligation and do not intend to
update or revise any of the forward-looking statements contained in this
news release and related conference call to reflect circumstances
existing after the date of this news release and related conference call
or to reflect the occurrence of future events even if experience or
future events make it clear that any expected results expressed or
implied by those forward-looking statements will not be realized.

Non-GAAP Financial Measures

The company reports its financial results in conformity with
generally accepted accounting principles in the United States (“GAAP”)
and the rules of the SEC. However, management believes that certain
non-GAAP financial measures, such as Free Cash Flow, Net Debt and
Adjusted EBIT, provide users of the company’s financial information with
additional useful information. The tables found below include Free Cash
Flow, Net Debt and Adjusted EBIT and corresponding reconciliations to
the most comparable GAAP financial measures. These non-GAAP financial
measures should be viewed as supplementing, and not as an alternative or
substitute for, the company’s financial results prepared in accordance
with GAAP. Certain of these items that may be excluded or included in
non-GAAP financial measures may be significant items that could impact
the company’s financial position, results of operations and cash flows
and should therefore be considered in assessing the company’s actual
financial condition and performance. Non-GAAP financial measures are
subject to inherent limitations as they reflect the exercise of judgment
by management in determining how they are formulated. Some specific
limitations, include but are not limited to, the fact that such non-GAAP
financial measures: (a) do not reflect cash outlays for capital
expenditures, contractual commitments or liabilities including pension
obligations, post-retirement health benefit obligations and income tax
liabilities, (b) do not reflect changes in, or cash requirements for,
working capital requirements; and (c) they do not reflect the interest
expense, or the cash requirements necessary to service interest or
principal payments, on indebtedness. Additionally, the methods used by
the company to calculate its non-GAAP financial measures may differ
significantly from methods used by other companies to compute similar
measures. As a result, any non-GAAP financial measures presented herein
may not be comparable to similar measures provided by other companies,
limiting the usefulness of these measures. The company urges investors
to review the reconciliation of these non-GAAP financial measures to the
comparable GAAP financial measures included in this press release, and
not to rely on any single financial measure to evaluate its business.

The company presents non-GAAP financial measures, such as Free Cash
Flow, Net Debt and Adjusted EBIT, because it believes they provide
investors, financial analysts and the public with additional information
to measure performance and evaluate the company’s ability to service its
debt and may be useful for comparing its operating performance with the
performance of other companies that have different financing and capital
structures and tax rates. The company further believes these measures
may be useful for period-over-period comparisons of underlying business
trends and its ongoing operations. See “RECONCILIATION OF GAAP TO
NON-GAAP FINANCIAL MEASURES FOR THE SECOND QUARTER OF 2018” below for
reconciliation to the most comparable GAAP financial measures.

Constant currency

Constant-currency comparisons are based on translating local currency
amounts in the prior-year period at actual foreign exchange rates for
the current year. The company routinely evaluates its financial
performance on a constant-currency basis in order to facilitate
period-to-period comparisons without regard to the impact of changing
foreign currency exchange rates.

LEVI STRAUSS & CO. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

 

May 27, 2018

November 26, 2017

The notes accompanying our consolidated financial statements in
our Form 10-Q are an integral part of these consolidated financial
statements.

LEVI STRAUSS & CO. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME

Net income attributable to noncontrolling interest

The notes accompanying our consolidated financial statements in
our Form 10-Q are an integral part of these consolidated financial
statements.

LEVI STRAUSS & CO. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

The notes accompanying our consolidated financial statements in
our Form 10-Q are an integral part of these consolidated financial
statements.

LEVI STRAUSS & CO. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

The notes accompanying our consolidated financial statements in
our Form 10-Q are an integral part of these consolidated financial
statements.

RECONCILIATION OF GAAP TO NON-GAAP FINANCIAL MEASURESFOR
THE SECOND QUARTER OF 2018

The following information relates to non-GAAP financial measures, and
should be read in conjunction with the investor call held on July 10,
2018, discussing the company’s financial condition and results of
operations as of and for the quarter ended May 27, 2018. Free cash flow,
Net debt and Adjusted EBIT are not financial measures prepared in
accordance with U.S. generally accepted accounting principles, or GAAP.
As used in this press release: (1) Free cash flow represents cash from
operating activities less purchases of property, plant and equipment,
(payments) proceeds on settlement of forward foreign exchange contracts
not designated for hedge accounting, repurchase of common stock
including shares surrendered for tax withholdings on equity award
exercises, and cash dividends to stockholders; (2) Net debt represents
total long-term and short-term debt less cash and cash equivalents; (3)
Adjusted EBIT represents net income plus income tax expense, interest
expense, other (income) expense, net, and restructuring related charges,
severance and other, net.

Free cash flow:

Net debt:

Adjusted EBIT:

Pension and postretirement benefit plan curtailment and net
settlement losses, net

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